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Court of Appeal: Deduction of Training Costs from Final Pay Illegal

To encourage police officers to stay with the Oakland Police Department longer, Oakland required those who went through training at its police academy to reimburse the city for training costs if the person left the police department before completing five years of service. Oakland's agreement with the police union provided that departing officers would owe the money at the time of separation and that the city could "deduct any amounts owed under this provision from the employee’s final paycheck." The remainder would be due as a debt.

Kenny Hassey was a new police officer. He signed an agreement permitting the city to charge back training costs if he left within five years. The training costs began at $8,000 and decreased over time. After several months, Hassey was told he was not performing to standards and should resign. He did, and therefore owed the repayment of training costs. Oakland deducted part of the money from his final pay, leaving about $6,000. Oakland sued Hassey for the rest. Hassey cross-complained that the repayment agreement was illegal.

The Court of Appeal first upheld Oakland's motion for summary judgment on its claim for the training costs. The court rejected arguments that it is illegal to ask employees to reimburse training costs, both under the federal Fair Labor Standards Act and under the Labor Code. The court upheld the breach of contract claim, in that Hassey had agreed to repay the money. Significantly, the court also rejected Hassey's argument that asking him to repay training costs was a de facto unlawful covenant not to compete.

The court then, not really surprisingly, held that Oakland illegally withheld Hassey's entire final paycheck as partial payment of the training costs. First, the court held, under the FLSA and state law, Hassey was not paid minimum wage for his final pay period because of the deduction. Second, the court held that Oakland was not allowed to "set-off" the reimbursement of training costs against wages. This conclusion is consistent with a lot of case law.